Cocoa Prices Climb as the Dollar Falls and Ivory Coast Cocoa Exports Slow

Cocoa prices rose Thursday, driven by a weaker dollar and concerns over tightening supplies from the Ivory Coast, where exports are slowing and the mid-crop quality is reportedly poor, with processors rejecting some beans. Supporting prices is the ICCO's revised 2023/24 global cocoa deficit to -494,000 MT, the largest in over 60 years, however, weighing on prices are rising ICE-monitored cocoa inventories in U.S. ports and concerns about waning consumer demand due to high prices and potential tariffs, as reflected in recent sales declines from Barry Callebaut, Hershey, and Mondelez.

Analysis

Cocoa prices (CCN25, CAN25) experienced an upward movement, with NY cocoa reaching a 1-1/2 week high and London cocoa a 1-week high, partially driven by a weaker US dollar which prompted short covering. However, gains in London cocoa were constrained by a strengthening British pound. Current price support stems from significant supply-side factors, including a slowing pace of Ivory Coast cocoa exports, which, despite being up +6.7% year-over-year from October 1 to June 1, represent a deceleration from the +35% increase observed in December. Further pressuring supply are quality concerns regarding the Ivory Coast's mid-crop, with processors reportedly rejecting beans due to 5-6% poor quality content per truckload, a substantial increase from the 1% typical of the main crop; the mid-crop estimate is also down -9% year-over-year to 400,000 MT. Persistent drought conditions covering over a third of Ghana and Ivory Coast, alongside Ghana's Cocobod reducing its 2024/25 harvest forecast to 617,500 MT, compound these supply issues. The International Cocoa Organization (ICCO) has amplified these concerns by revising the 2023/24 global cocoa deficit to -494,000 MT, the largest in over six decades, with global production falling -13.1% year-over-year and the stocks-to-grindings ratio hitting a 46-year low of 27.0%. Conversely, bearish pressures are emerging. ICE-monitored cocoa inventories in US ports have rebounded to an 8-1/2 month high. More significantly, consumer demand for cocoa products shows signs of weakening due to elevated prices and potential tariffs. This is evidenced by Barry Callebaut AG cutting its annual sales guidance, The Hershey Company (HSY) reporting a 14% Q1 sales decline and anticipating $15-$20 million in Q2 tariff costs, and Mondelez International (MDLZ) noting weaker-than-expected Q1 sales as consumers curtail snack purchases. While Q1 global cocoa grindings in North America (-2.5% y/y), Europe (-3.7% y/y), and Asia (-3.4% y/y) all declined, these figures were less severe than initially feared. Looking ahead, the ICCO projects a global cocoa surplus of 142,000 MT for 2024/25, the first in four years, with an anticipated +7.8% year-over-year increase in global production, which could moderate the current tight supply dynamics. The overall market sentiment is gauged as neutral (-0.1), although specific consumer-facing companies like HSY (-0.7) and MDLZ (-0.6) carry negative sentiment reflecting these demand headwinds.

Key Decisions for Investors

• Given the substantial 2023/24 supply deficit and persistent West African production challenges, cocoa prices may find continued support in the near term; however, investors should critically assess the ICCO's forecast for a 2024/25 surplus and increasing signs of demand destruction, which could limit further price appreciation or precipitate a market correction.
• Investors holding positions in chocolate manufacturing companies such as The Hershey Company (HSY) and Mondelez International (MDLZ) should exercise caution, as prolonged high cocoa input costs and the impact of potential tariffs are demonstrably affecting sales volumes and forward-looking profitability.
• Market participants should closely monitor developments related to the Ivory Coast's mid-crop quality and export volumes, fluctuations in US port inventory levels, and forthcoming announcements from major chocolate producers concerning consumer demand elasticity in response to sustained higher retail prices.